Crossing Borders: New Rules for UK Property Transactions

Following significant changes to the property tax regime, there are new rules which affect the cross-border purchase of property.

In Scotland, Stamp Duty Land Tax (SDLT) was replaced by the Land and Buildings Transaction Tax (LBTT) for purchases made on or after 1 April 2015. In Wales, SDLT was replaced by the Land Transaction Tax (LTT) for purchases on or after 1 April 2018.

The changes mean that in some cases, the purchase of land and property may now qualify as a ‘cross-border’ transaction, in which case special rules will apply. The co-existence of these different property tax regimes within the UK means that a property transaction may now incur liability to more than one tax.

This situation could apply where a single property, comprising land on both sides of the English-Scottish or English-Welsh border, is purchased – for example, a farm which straddles both sides of the border.

Liability to multiple taxes could also arise where there is a ‘multiple property transaction’. This could apply where there is a single agreed amount of consideration for the purchase of two or more property interests in different UK tax jurisdictions – whether as a single transaction or a number of connected transactions.

So, a multiple tax liability could arise where a purchaser acquires a business including three shops (one in Wales, one in Scotland, and one in England, for example), or where a holiday accommodation business, comprising properties on both sides of the Scottish border, is purchased.

In either of these eventualities, the total consideration must be divided or apportioned on a just and reasonable basis, to determine the appropriate consideration for the part within each UK tax jurisdiction. As with any tax matter, it is open to the relevant tax authority – HMRC, the Welsh Revenue Authority (WRA) or Revenue Scotland (RS) – to challenge any return made, or to enquire into the basis on which apportionment was made.

Example

A farm in Monmouthshire comprising 20 fields, a farmhouse, a bungalow and agricultural buildings is being sold. Nine fields are wholly in England, nine wholly in Wales, and two in both England and Wales. Here apportionment would need to take into account where the buildings are located and the nature of the buildings, as well as any parts of the land that may be more valuable because of location, access, use or development (such as field drainage).

Where the consideration (as apportioned) is more than the limit for notification to the relevant tax authority, a tax return will be needed. So, potentially up to three tax returns may be needed – for SDLT, LBTT and LTT – with payment being made to three different tax authorities.

This is a complex area of taxation. We can advise on all of your tax and property requirements. Please contact us for further information and advice.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.